In troubled times homeowners sometimes go into denial, thinking if the situation is ignored, it will go away. The fact is, if you are having trouble making your mortgage payment sooner or later you will have to face up to the situation. It's best you face up to it as soon as possible.
Consulting a real estate professional is a good place to start. Perhaps with some help and planning you can get your home sold and avoid a foreclosure and further negative remarks on your credit report.
How can a REALTOR help?
If you have equity in your home (the difference between your loan balance and your "net" after sale), an agent may be able to sell your home. If you are "upside down" on your loan, meaning you owe more than it is worth, you may qualify for a "short sale" with your lender.
What is a "short sale?"
A short sale is generally defined as a sale in which the lender permits the property to be sold for less than what is owed on it. Short sales are another form of pre-foreclosure sales. The purchaser on a short sale gets the property for a lesser amount than the seller's mortgage. The buyer finances the home however he chooses much like any other real estate transaction.
Who can qualify for a short sale? It is up to the lender to decide if a borrower is eligible for a short sale. There are many factors the lender considers some of these factors are: The borrowers overall financial condition The cost to get the property into resale condition The property's value...repaired The properties "as is" value The cost of marketing and selling the property
Homeowner Hardship Test Any homeowner who wants the help of a short sale in lieu of foreclosure will have to pass the lender's hardship test. Tests vary according to lender, but the borrower must be experiencing some of the following:
Illness of the borrower or immediate family, causing havoc on family finances.
Death of a spouse, with financial implications rendering inability to make mortgage payments
Transfer out of area without being able to sell home
Active duty personnel without income to make payments Borrower experiences a disability, rendering work impossible
Unemployment of borrower with no foreseeable employment future due to local economic conditions
Be prepared to present documentation Borrowers will be required to provide the lender information for consideration of a short sale.
- A hardship letter defining what the issues are to prove the claim.
- A financial worksheet of net income & expenses
- Copies of 2 years Federal Tax returns
- Copies of last 2 months payroll stubs
- Copies of last 2 months bank statements for all accounts
- A copy of the signed sales contract Net sheet showing breakdown of all projected costs, including Realtor commissions.
After completing and submitting the above documentation to the lender, it could take 1 to 6 months for approval (timing is dependent on the lender). Being proactive and getting an early start is critical to the success of a short sale. The lender is in total control, the proof is up to the homeowner. Cooperation, honesty and communication are basic elements for completing a short sale.
What is a "deed in lieu of foreclosure?"
On occasion a lender will offer a homeowner a "deed in lieu of foreclosure" on a mortgage that is in default. This situation is often times more cost efficient as opposed to going through a foreclosure. The advantages to doing a deed in lieu of foreclosure (at least in Colorado) is the amount of time it takes to complete. Colorado foreclosure laws have statutory time lines, whereas "deed in lieu of foreclosure" can be accomplished much quicker, as both parties agree to the timing. For the homeowner it is more private, no public notices are published in the newspapers.
An important fact to remember, if the homeowner is successful in obtaining a short sale or a deed in lieu of foreclosure, these are a taxable event in the eyes of the IRS. The homeowner may still have a tax obligation, it is wise to consult a tax professional to determine the amount of tax due.
The next step...
If you or someone you know needs assistance with the sale of a home facing foreclosure or a short sale, please feel free to call me for a free consultation.
I welcome your call.
Kristal Kraft sells Denver Real Estate in and around the metro area.
The above information is to be used as a general guide and is by no means to be used as legal advice.